CONSOLIDATED FINANCIAL STATEMENTS AS TOGETHER WITH THE INDEPENDENT AUDITOR'S REPORT
CONVENIENCE TRANSLATION OF THE AUDIT REPORT AND CONSOLIDATED FINANCIAL STATEMENTS ORIGINALLY ISSUED IN TURKISH INDEPENDENT AUDITOR S REPORT ON CONSOLIDATED FINANCIAL STATEMENTS To The Board of Directors of Türk Tuborg Bira ve Malt Sanayi A.Ş. İzmir We have audited the accompanying consolidated balance sheet of Türk Tuborg Bira ve Malt Sanayi A.Ş. (the Company ) and its subsidiary (together the Group ) as at 31 December 2012 and the related consolidated statement of comprehensive income, changes in equity and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Group Management s Responsibility for the Consolidated Financial Statements Group Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with financial reporting standards published by the Capital Markets Board. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with auditing standards published by Capital Markets Board. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Group s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by Group management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion In our opinion, the accompanying consolidated financial statements give a true and fair view of the financial position of Türk Tuborg Bira ve Malt Sanayi A.Ş. and its subsidiary as at 31 December 2012, and their consolidated financial performance and cash flows for the year then ended in accordance with the financial reporting standards published by the Capital Markets Board. İzmir, April 12, 2013 DRT BAĞIMSIZ DENETİM ve SERBEST MUHASEBECİ MALİ MÜŞAVİRLİK A.Ş. Member of DELOITTE TOUCHE TOHMATSU LIMITED Gülin Günce Partner
TABLE OF CONTENTS... PAGE CONSOLIDATED BALANCE SHEET... 1-2 CONSOLIDATED COMPREHENSIVE INCOME STATEMENT... 3 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY... 4 CONSOLIDATED STATEMENT OF CASH FLOWS... 5... 6-49 NOTE 1 ORGANISATION AND NATURE OF OPERATIONS... 6 NOTE 2 BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS... 7-21 NOTE 3 CASH AND CASH EQUIVALENTS... 22 NOTE 4 FINANCIAL INVESTMENTS... 22 NOTE 5 FINANCIAL LIABILITIES 22 NOTE 6 TRADE RECEIVABLES AND PAYABLES... 23 NOTE 7 OTHER RECEIVABLES AND PAYABLES... 24 NOTE 8 INVENTORIES... 24 NOTE 9 INVESTMENT PROPERTIES... 25 NOTE 10 PROPERTY, PLANT AND EQUIPMENT... 25-26 NOTE 11 INTANGIBLE ASSETS... 27 NOTE 12 PROVISIONS, CONTINGENT ASSETS AND CONTINGENT LIABILITIES... 27-28 NOTE 13 COMMITMENTS... 29 NOTE 14 PROVISION FOR BENEFITS PROVIDED TO EMPLOYEES... 29-30 NOTE 15 OTHER ASSETS AND LIABILITIES... 31 NOTE 16 EQUITY. 31-33 NOTE 17 SALES AND COST OF SALES... 33 NOTE 18 MARKETING, SELLING AND DISTRIBUTION EXPENSES AND GENERAL ADMINISTRATIVE EXPENSES... 34 NOTE 19 EXPENSES BY NATURE... 34 NOTE 20 OTHER OPERATING INCOME/ (EXPENSE)... 35 NOTE 21 FINANCIAL INCOME... 35 NOTE 22 FINANCIAL EXPENSE... 35 NOTE 23 TAX ASSETS AND LIABILITIES (INCLUDING DEFERRED TAX ASSETS AND LIABILITIES)...... 36-38 NOTE 24 GAIN / (LOSS) PER SHARE... 39 NOTE 25 RELATED PARTY DISCLOSURES... 39-40 NOTE 26 NATURE AND LEVEL OF RISKS ARISING FROM FINANCIAL INSTRUMENTS... 40-48 NOTE 27 FINANCIAL INSTRUMENTS... 48-49
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2012 ASSETS Audited Audited Current Period Prior Period Notes Current Assets 190.096.338 144.176.763 Cash and cash equivalents 3 15.233.056 1.560.741 Financial investments 4 167.199 167.199 Trade receivables 6 127.934.470 109.525.788 Other receivables 7 2.930.038 176.426 Inventories 8 41.722.924 26.694.500 Other current assets 15 2.108.651 6.052.109 Non-current assets 145.198.229 123.498.510 Other receivables 7 18.246 20.361 Investment property 9 1.535.466 1.598.070 Property, plant and equipment 10 130.912.992 120.107.239 Intangible assets 11 743.044 977.269 Deferred tax asset 23 10.365.610 - Other non-current assets 15 1.622.871 795.571 TOTAL ASSETS 335.294.567 267.675.273 The accompanying notes are integral part of these consolidated financial statements. 1
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2012 LIABILITIES Audited Audited Current Period Prior Period Notes Current liabilities 178.858.536 163.617.914 Financial liabilities 5-47.111.137 Trade payables 6 34.484.054 22.897.388 - Other trade payables 33.338.916 22.205.157 - Due to related parties 25 1.145.138 692.231 Other payables 7 51.536 2.007.085 Provisions 12 43.256.639 35.863.548 Provision for benefits provided to employees 14 4.249.231 3.179.715 Other current liabilities 15 96.817.076 52.559.041 Non-current liabilities 6.661.426 4.488.546 Provision for employment termination benefits 14 6.661.426 4.488.546 TOTAL LIABILITIES 185.519.962 168.106.460 EQUITY 149.774.605 99.568.813 Equity attributable to equity holders of the Group 149.774.605 99.568.813 Share capital 16 322.508.253 99.971.560 Adjustment to share capital 16 277.612.961 277.612.961 Capital advance 16-212.928.731 Share premium 16 153.768 40.913 Accumulated losses 16 (490.985.352) (482.532.607) Net profit/(loss) for the year 40.484.975 (8.452.745) TOTAL EQUITY AND LIABILITIES 335.294.567 267.675.273 The accompanying notes are integral part of these consolidated financial statements. 2
CONSOLIDATED COMPREHENSIVE INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2012 (Amounts expressed in TurkishLlira ( TL ) unless otherwise indicated.) Audited Audited Current Period Prior Period 1 January- 1 January- Notes Sales 17 325.053.538 214.427.422 Cost of sales 17 (162.164.035) (115.686.275) GROSS PROFIT 162.889.503 98.741.147 Marketing, selling and distribution expenses 18 (104.748.323) (80.604.749) General administrative expenses 18 (21.277.895) (16.559.527) Other operating income 20 2.203.934 2.574.825 Other operating expenses 20 (2.190.966) (3.305.625) OPERATING PROFIT 36.876.253 846.071 Financial income 21 2.353.960 1.598.524 Financial expenses 22 (9.110.848) (10.897.340) PROFIT/ (LOSS) BEFORE TAXES 30.119.365 (8.452.745) Taxes on income 10.365.610 - - Current corporate tax expense 23 - - - Deferred tax income 23 10.365.610 - NET INCOME/ (LOSS) FOR THE PERIOD 40.484.975 (8.452.745) Other comprehensive income - - TOTAL COMPREHENSIVE INCOME/( LOSS) 40.484.975 (8.452.745) Allocation of net income/ (loss) for the period and total comprehensive income/ (loss): Non-controlling interests - - Equity holders of the Group 40.484.975 (8.452.745) 40.484.975 (8.452.745) Gain/ (Loss) per share for net income/ (loss) attributable to the equity holders of the parent company (Kr) 24 0,13 (0,03) The accompanying notes are integral part of these consolidated financial statements. 3
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2012 Audited: Net Share Adjustment to Capital Accumulated Profit/(Loss) Total Capital Share Capital Advance Share Premium Losses for the year Equity 1 January 2011 99.971.560 277.612.961 212.928.731 40.913 (476.789.029) (5.743.578) 108.021.558 Transfer - - - - (5.743.578) 5.743.578 - Total comprehensive loss - - - - - (8.452.745) (8.452.745) 31 December 2011 99.971.560 277.612.961 212.928.731 40.913 (482.532.607) (8.452.745) 99.568.813 Transfer - - - - (8.452.745) 8.452.745 - Capital increase (Note 16) 222.536.693 - (212.928.731) 112.855 - - 9.720.817 Total comprehensive income - - - - - 40.484.975 40.484.975 31 December 2012 322.508.253 277.612.961-153.768 (490.985.352) 40.484.975 149.774.605 The accompanying notes are integral part of these consolidated financial statements. 4
CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2012 Operating activities: Audited Audited Current Period Prior Period 1 January- 1 January- Notes Profit/ (loss) before taxes 30.119.365 (8.452.745) Adjustments to reconcile net cash generated from operating activities to profit/ (loss) before taxation on income: Depreciation and amortisation 9-10-11 26.275.622 20.619.025 Interest expense (net) 3.609.844 4.066.648 Rediscount (income)/ expense (332.809) 587.675 Provision for doubtful receivables 20 1.790.154 1.225.375 Reversal of provision for doubtful receivables 20 (203.373) (127.290) Provision for employment termination benefits 14 2.847.454 924.139 Provision for vacation pay obligation 14 1.353.877 813.926 Gain on sale of property plant and equipment (net) 20 (39.515) (810.757) Provision for excise duty 12 1.558.774 1.558.773 Provision for impairment of inventories (net) 8 (131.699) 158.863 Other provisions and accruals(net) 12 5.834.317 8.320.757 72.682.011 28.884.389 Changes in assets and liabilities: Increase in trade receivables 6 (19.662.654) (33.106.407) Increase in inventory 8 (14.896.725) (3.251.046) Decrease/ (increase) in other receivables and other current assets 7-15 1.189.846 (2.159.323) (Increase)/ decrease in non-current receivables and assets 7-15 (825.185) 1.833.547 (Increase)/ decrease in trade payables 6 11.586.666 (876.209) Increase in other current liabilities 7-15 42.302.486 16.108.995 Vacation pay obligation paid 14 (284.361) (266.810) Employment termination benefits paid 14 (674.574) (500.609) Net cash generated from operating activities 91.417.510 6.666.527 Investing activities: Purchases of property, plant and equipment and intangible assets 10-11 (37.177.286) (33.486.894) Proceeds from sales of property, plant and equipment 432.255 1.251.960 Net cash used in investing activities (36.745.031) (32.234.934) Financing activities: Proceeds from bank loans 404.249.749 407.203.938 Redemption of bank loans (450.615.750) (377.351.378) Interest paid (4.354.980) (3.309.942) Capital increase 9.720.817 - Net cash (used in)/ generated from financing activities (41.000.164) 26.542.618 Increase in cash and cash equivalents 13.672.315 974.211 Cash and cash equivalents at the beginning of the year 1.560.741 586.530 Cash and cash equivalents at the end of the year 3 15.233.056 1.560.741 The accompanying notes are integral part of these consolidated financial statements. 5
NOTE 1 - ORGANISATION AND NATURE OF OPERATIONS Türk Tuborg Bira ve Malt Sanayii A.Ş. ( Türk Tuborg or the Company ) was incorporated in İzmir in 1969. The Company is engaged in production, sales and distribution of beer and malt to the domestic and international markets. The Company is registered in the Turkish Capital Markets Board ( CMB ) and its shares have been traded on the Istanbul Stock Exchange Market ( ISE ) since 1989. As at 31 December 2012, the shares traded on ISE are 4,31% (2011: 4,31%) of the total shares. The ultimate shareholder and the party that controls the Company is International Beer Breweries Ltd ( IBBL ) with a share of 95,69% (Note 16). The number of employees in the Company and Bimpaş Bira ve Meşrubat Pazarlama A.Ş., its subsidiary, ( Group ) as at 31 December 2012 is 582 (2011: 559). The address of the registered office is follows: Türk Tuborg Bira ve Malt Sanayii A.Ş. Kemalpaşa Caddesi No: 52 Işıkkent 35070 İzmir Subsidiary The details of the subsidiary of the Company is as follows: Listed entity Nature of operations Core business Bimpaş Bira ve Meşrubat Pazarlama A.Ş. No Selling and distribution Selling and distribution of beer The Company sells almost all of the beer which it produces to its subsidiary, Bimpaş Bira ve Meşrubat Pazarlama A.Ş. ( Bimpaş or Subsidiary ), in which it holds a share of 99,99% (2011: 99,93%). Accordingly, Bimpaş performs sales and distribution of such products in the domestic market. Approval of the consolidated financial statements for issue: The consolidated financial statements of the Group were approved by the Board of Directors of Türk Tuborg Bira ve Malt Sanayii A.Ş. for issue on 12 April 2013. The General Assembly of the Company and/or governmental authorities are entitled to modify the consolidated financial statements as enclosed herein. 6
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS 2.1 Basis of presentation a) Basis of presentation of consolidated financial statements: The Company and its Turkish subsidiary maintain their books of account and prepare their statutory financial statements in accordance with accounting principles in the Turkish Commercial Code ("TCC") and tax legislation. The Capital Markets Board ( CMB ) Communiqué Serial: XI, No: 29 Communiqué on Financial Reporting Standards in Capital Markets provides principals and standards on the preparation and presentation of financial statements. The Communiqué is applicable commencing from the first interim financial statements prepared subsequent to 1 January 2008, and Communiqué Serial: XI, No: 25 Communiqué on Capital Market Accounting Standards is annulled with this communiqué. Based on this communiqué, the financial statements should be prepared in accordance with the International Financial Reporting Standards ( IAS/IFRS ) as endorsed by the European Union. However companies will apply IASs/IFRSs until the differences between the standards accepted by the European Union and the standards issued by International Accounting Standards Board ( IASB ) are announced by Turkish Accounting Standards Board ( TASB ). In this scope, Turkish Accounting / Financial Reporting Standards issued by TASB that are not controversial to the adopted standards shall be taken as a basis in the application. Since the differences of the IAS/IFRS endorsed by the European Union from the ones issued by the IASB have not been announced by TASB, the consolidated financial statements are prepared within the framework of Communiqué XI, No: 29 and related promulgations to this Communiqué which are based on IAS/IFRS. The accompanying consolidated financial statements and the related notes to them are presented in accordance with the formats recommended by the CMB, with the announcement dated 17 April 2008 and 9 January 2009, including the compulsory disclosures. Statutory Decree No: 660, which has been become effective and published in the Official Gazette on 2 November 2011, and the Additional Clause 1 of the Law No: 2499 were nullified and accordingly, Public Oversight, Accounting and Audit Standards Institution (the Institution ) was established. As per Additional Article 1 of the Statutory Decree, applicable laws and standards will apply until new standards and regulations be issued by the Institution and will become effective. In this respect, the respective matter has no effect over the Basis of The Preparation of Financial Statements and notes disclosed in the accompanying financial statements as of the reporting date. The consolidated financial statements are based on historical cost convention and prepared in terms of Turkish Lira ( TL ). In determination of historical cost, fair value of the cash consideration of the payment is taken into account. b) Presentation currency Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates ( the functional currency ). The consolidated financial statements are presented in TL, which is the parent Company s functional and presentation currency. 7
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) c) Adjustment of financial statements in hyperinflationary economies With the decision taken on 17 March 2005, the CMB announced that, effective from 1 January 2005, the application of inflation accounting is no longer required for companies operating in Turkey and preparing their financial statements in accordance with the CMB Financial Reporting Standards. Accordingly, IAS 29, Financial Reporting in Hyperinflationary Economies, issued by the IASB, has not been applied in the consolidated financial statements for the accounting year commencing from 1 January 2005. d) Group accounting The consolidated financial statements include the accounts of the parent company, Türk Tuborg and its subsidiary on the basis set out below. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of the companies included in the scope of consolidation have been prepared as of the date of the consolidated financial statements and have been prepared in accordance with CMB Financial Reporting Standards, applying uniform accounting policies and presentation. Subsidiary Subsidiaries are companies over which the Company has power to control the financial and operating policies for the benefit of the Group. This power is granted if Türk Tuborg can exercise more than 50% of the voting rights relating to shares in the companies as a result of shares owned directly and indirectly by itself. Subsidiary is included in the consolidated financial statements from the date of transfer of control any to the Company and it is excluded from the consolidated financial statements from the date of cease of control. The financial statements of the subsidiary are consolidated on a line-by-line basis and the carrying value of the investment held by the Company is eliminated against the related equity. Intercompany transactions and balances between group companies are eliminated. The cost of, and the dividends arising from, shares held by Group are eliminated from equity and income or loss for the year, respectively. The details of the Company s subsidiary at 31 December 2012 are as follows: Subsidiary Location of incorporation Participation rate (%) Voting power (%) Core business Bimpaş Bira ve Meşrubat Pazarlama A.Ş. Turkey %99,99 %99,99 Selling and distribution of beer Any losses attributable to the non-controlling shareholders that exceed their share in net asset of the related subsidiary are allocated to the equity holders of the Group. As the Subsidiary s net assets and related non-controlling shares do not have any significant impact on the net value of the Company, its financial position and operations, they are not separately classified as noncontrolling interest in the consolidated balance sheet and comprehensive income statement. 8
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.2 Changes in accounting policies Any significant changes in the accounting policies are retrospectively applied and the consolidated financial statements of the preceding terms are restated. There has been no change in the accounting policies of the Group in the current year. 2.3 Changes in accounting estimates and errors Any significant changes in accounting estimates are prospectively applied in consolidated financial statements and accounted for in the current and preceding periods. There has been no significant change in the accounting estimates of the Group in the current year. In relation to errors identified in financial reporting, they are accounted for retrospectively and prior year financial statements are restated. 2.4 Amendments to International Financial Reporting Standards 2.4.1 New and Revised IFRSs affecting presentation and disclosure only None. 2.4.2 New and Revised IFRSs affecting the reported financial performance and/ or financial position None. 2.4.3 New and Revised IFRSs applied in 2012 with no material effect on the consolidated financial statements The following new and revised IFRSs have been adopted in these consolidated financial statements. The application of these new and revised IFRSs has not had any material impact on the amounts reported for the current and prior years but may affect the accounting for future transactions or arrangements. Amendments to IAS 12 Deferred Taxes Recovery of Underlying Assets The amendment is effective for annual periods beginning on or after 1 January 2012. IAS 12 requires an entity to measure the deferred tax relating to an asset depending on whether the entity expects to recover the carrying amount of the asset through use or sale. It can be difficult and subjective to assess whether recovery will be through use or through sale when the asset is measured using the fair value model in IAS 40 Investment Property. The amendment provides a practical solution to the problem by introducing a presumption that recovery of the carrying amount will, normally be, through sale. As the Group does not have any investment property measured using fair value model, the amendment did not have any effect on the consolidated financial statements. 9
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) Amendments to IFRS 7 Disclosures Transfers of Financial Assets The amendments to IFRS 7 increase the disclosure requirements for transactions involving transfers of financial assets. These amendments are intended to provide greater transparency around risk exposures when a financial asset is transferred but the transferor retains some level of continuing exposure in the asset. The amendments also require disclosures where transfers of financial assets are not evenly distributed throughout the period. These amendments to IFRS 7 did not have a significant effect on the Group s disclosures. However, if the Group enters into other types of transfers of financial assets in the future, disclosures regarding those transfers may be affected. 2.4.4 New and Revised IFRSs in issue but not yet effective The Group has not applied the following new and revised IFRSs that have been issued but are not yet effective: Amendments to IAS 1 Presentation of Items of Other Comprehensive Income 1 Amendments to IAS 1 Clarification of the Requirements for Comparative Information 2 IFRS 9 Financial Instruments 5 IFRS 10 Consolidated Financial Statements 3 IFRS 11 Joint Arrangements 3 IFRS 12 Disclosure of Interests in Other Entities 3 IFRS 13 Fair Value Measurement 3 Amendments to IFRS 7 Disclosures Offsetting Financial Assets and Financial Liabilities 3 Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of IFRS 9 and Transition Disclosures 5 Amendments to IFRS 10, IFRS 11 Consolidated Financial Statements, Joint Arrangements and and IFRS 12 Disclosures of Interests in Other Entities: Transition Guide 3 IAS 19 (as revised in 2011) Employee Benefits 3 IAS 27 (as revised in 2011) Separate Financial Statements 3 IAS 28 (as revised in 2011) Investments in Associates and Joint Ventures 3 Amendments to IAS 32 Offsetting Financial Assets and Financial Liabilities 4 Amendments to IFRSs Annual Improvements to IFRSs 2009-2011 Cycle except for the amendment to IAS 1 3 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine 3 1 Effective for annual periods beginning on or after 1 July 2012. 2 Effective for annual periods beginning on or after 1 January 2013 as part of the Annual Improvements to IFRSs 2009-2011 Cycle issued in May 2012. 3 Effective for annual periods beginning on or after 1 January 2013. 4 Effective for annual periods beginning on or after 1 January 2014. 5 Effective for annual periods beginning on or after 1 January 2015. The group has not yet had an opportunity to consider the potential impact of the adoption of these amendments to the standards. 10
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5 Summary of significant accounting policies 2.5.1 Revenue recognition Revenue is generated from beer sales to domestic and foreign dealers and customers. Revenues are recognised on an accrual basis at the time deliveries are made, the amount of revenue can be measured reliably and it s probable that the economic benefits associated with the transaction will flow to the Company at the fair value of considerations received or receivable. Sale of goods: Revenue from the sale of goods is recognized when all the following conditions are satisfied: The Group has transferred to the buyer the significant risks and rewards of ownership of the goods; The Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold; The amount of revenue can be measured reliably; It is probable that the economic benefits associated with the transaction will flow to the entity; and The costs incurred or to be incurred in respect of the transaction can be measured reliably. Interest income: Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset s net carrying amount. Rental income: Rental income from investment properties is accounted for during the duration of rent agreement based on straight-line method. 2.5.2 Inventories Inventories are stated at the lower of cost and net realizable value. Costs, including an appropriate portion of fixed and variable overhead expenses, are assigned to inventories held by the method most appropriate to the particular class of inventory, with valued on a weighted average basis. Net realizable value represents the estimated selling price less all estimated costs of completion and costs necessary to make a sale. When the net realizable value of inventory is less than cost, the inventory is written down to the net realizable value and the expense is included in the consolidated comprehensive income statement in the period the write-down or loss occurred. When the circumstances that previously caused inventories to be written down below cost no longer exist or when there is clear evidence of an increase in net realizable value because of economic circumstances, the amount of the write-down is reversed. The reversal amount is limited to the amount of the original write-down. 11
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.3 Property, plant and equipment All other items of property, plant and equipment acquired before 1 January 2005 are carried at cost in the equivalent purchasing power of TL as at 31 December 2004 and items acquired after 1 January 2005 are carried at cost, less the subsequent depreciation and impairment loss, if any, as of 31 December 2010. Borrowing costs directly attributable to the qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets in accordance with the Group's accounting policy. In 2011, the Group does not have any qualified assets, and borrowing costs are recognised in the consolidated comprehensive income statement in the period in which they are incurred. Property, plant and equipment are capitalised and depreciated when they are fully commissioned and in a physical state to meet their designed production capacity. Residual values of property, plant and equipment are deemed as negligible. Depreciation is charged so as to write off the cost or valuation of assets, other than land and properties under construction, over their estimated useful lives, using the straight-line method. Land is not depreciated and carried at cost less accumulated impairment. Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets using the straight-line method. The annual depreciation rates for property, plant and equipment, which are based on the approximate useful lives of such assets, are as follows: Rate (%) Buildings 2,5-4 Machinery and equipments 6,7-20 Furniture and fixtures and returnable bottles and crates 6,7-33 Motor vehicles 12,5-20 The estimated useful lives, residual values and depreciation method are reviewed at each year end, with the effect of any changes in estimate accounted for on a prospective basis. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. Impairment losses are recognised in consolidated comprehensive income statement. Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss. Repairs and maintenance are charged to the consolidated statements of income during the financial period in which they are incurred. The Group derecognises the carrying amounts of the replaced parts related to renovations regardless of whether the replaced parts were depreciated separately. Major overhauls are depreciated over shorter of their useful lives or the remaining useful life of the related assets. 12
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.4 Investment property Investment property, which are properties, held to earn rentals and/or for capital appreciation is carried at cost less accumulated depreciation and any accumulated impairment losses. The carrying amount includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met; and excludes the costs of day to day servicing of an investment property. Depreciation is provided on investment property on a straight line basis over 40 years. Investment properties are derecognized when either they have been disposed of or when the investment property is permanently withdrawn from use and no future economic benefit is expected from its disposal. Any gains or losses on the retirement or disposal of an investment property are recognized in consolidated comprehensive profit or loss in the year of retirement or disposal. 2.5.5 Financial leasing Leasing - the Group as Lessee Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Lease payments are apportioned between finance charges and reduction of the lease obligation so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged to profit or loss, unless they are directly attributable to qualifying assets, in which case they are capitalized in accordance with the Group s general policy on borrowing costs. Rentals payable under operating leases are charged to profit or loss on a straight-line basis over the term of the relevant lease. Benefits received and receivable as an incentive to enter into an operating lease are also spread on a straight-line basis over the lease term. 2.5.6 Intangible assets Intangible assets are mainly composed of computer software and other related intangible assets none of which were internally generated. All other items of intangible assets acquired before 1 January 2005 are carried at cost in the equivalent purchasing power of TL as at 31 December 2004 and items acquired after 1 January 2005 are carried at cost, less the subsequent depreciation and impairment loss, if any, at the consolidated financial statements. Amortization is charged on a straight-line basis over their estimated useful lives of three years. The estimated useful life and amortization method are reviewed at the end of each annual reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Residual values of intangible assets are deemed as negligible. An impairment loss is recognised for the amount by which the carrying amount of the asset exceeds its recoverable amount. 13
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.7 Impairment of non-financial assets At each reporting date, the Group assesses whether there is an impairment indication for the assets, stated at revalued amounts. When an indication of impairment exists, the Group estimates the recoverable amounts of such assets. Recoverable amounts of intangible assets that are not available for use, are estimated at each reporting date. An impairment loss is recognised for the amount by which the carrying amount of the asset or any cash-generating unit of that asset exceeds its recoverable amount, which is the higher of an asset s net selling price or value in use. Impairment losses are accounted for in the consolidated comprehensive income statement. Impairment losses can be reversed to the extent that increased carrying amount of an asset shall not exceed the carrying amount that would have been determined had no impairment loss been recognized for the asset in prior years provided that increases in the recoverable amount of the asset can be associated with events that occur subsequent to the period in which the impairment loss was recognised. 2.5.8 Borrowing costs Borrowings are recognised initially at the proceeds received, net of any transaction costs incurred. In subsequent periods, borrowings are measured at amortised cost using the effective yield method; any difference between the proceeds (net of transaction costs) and the redemption value is recognised at the consolidated comprehensive income statement as finance cost over the period of the borrowings. Loans with a maturity of less than 12 months are included in current liabilities and in non-current liabilities with a maturity of longer than 12 months. Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. In 2012, the Group did not have any qualified assets, and borrowing costs were therefore recognised in the consolidated comprehensive income statement in the period in which they are incurred. 14
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.9 Financial instruments a) Financial assets The classification of financial assets depends on the purpose for which the financial assets were acquired. The Group management determines the classification of its financial assets at initial recognition and re-evaluates this designation at every reporting date. The Group classifies its financial instruments in the following categories: i. Receivables Receivables constitute non-derivative financial instruments, which are not quoted in active markets and have fixed or scheduled payments. Receivables without held-for-sale intention arise from the Group s supply of goods and service to any debtor. If the maturity of these instruments are less than 12 months, these receivables are classified in current assets and if more than 12 months, classified in non-current assets. The receivables are included in trade receivables and other receivables in the consolidated balance sheet. Receivables are recognised initially at the proceeds received, net of any transaction costs incurred. In subsequent periods, receivables are stated at amortised cost using the effective yield method. The effective interest method is a method of calculating the amortized cost of a financial asset and of allocating interest income over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset, or, where appropriate, a shorter period. ii. Available-for-sale financial assets Investments intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in interest rates, are classified as available-for-sale. These are included in noncurrent assets unless management has expressed the intention of holding the investment for less than 12 months from the balance sheet date or unless they will need to be sold to raise operating capital, in which case they are included in current assets. The Group management determines the appropriate classification of its investments at the time of the purchase and re-evaluates such designation on a regular basis. All financial investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investments, and subsequently carried at fair value. The financial assets which the group has a participation rate less than 20% and are classified as available-for-sale investments, are carried at market value when there is quoted market price, they are carried at fair value by using generally accepted valuation techniques, when there is no active market for the financial asset quoted not active. When there is no quoted market price, and when a reasonable estimate of fair value could not be determined as a result of being other methods inappropriate and unworkable, available-for-sale investments acquired before 1 January 2005 are carried at cost expressed in purchasing power of TL as at 31 December 2004 and available-for-sale investments acquired after 1 January 2005 are carried at cost, less impairment losses, if any. Impairment losses are recognized at consolidated comprehensive income statement. 15
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) iii. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. Assets in this category are classified as current assets. The Group has no financial assets in this category. iv. Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity that the management has the positive intention and ability to hold to maturity are classified as held-to-maturity. Held-to-maturity financial assets are carried at amortised cost using the effective interest method, less any provision for impairment. The Group has no financial assets classified in this category. Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at each balance sheet date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been impacted. For financial assets carried at amortized cost, the amount of the impairment is the difference between the asset s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss. For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized. In respect of available-for-sale equity securities, any increase in fair value subsequent to an impairment loss is recognized directly in equity. 16
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) b) Financial liabilities Financial liabilities and equity instruments issued by the Group are classified according to the substance of the contractual arrangements entered into and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Group after deducting all of its liabilities. The accounting policies adopted for specific financial liabilities and equity instruments are set out below. Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities. i. Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortized cost using the effective interest method, with interest expense recognized on an effective yield basis. The effective interest method is a method of calculating the amortized cost of a financial liability and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period. 2.5.10 Foreign currency transactions For the purpose of the consolidated financial statements, the results and financial position of each entity are expressed in TL. In preparing the financial statements of the individual entities, transactions in currencies other than TL (foreign currencies) are recorded at the rates of exchange prevailing on the dates of the transactions. At each balance sheet date, monetary items denominated in foreign currencies are retranslated at the rates prevailing on the balance sheet date. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. Exchange differences are recognized in profit or loss in the period in which they arise. 2.5.11 Gain per share Gain per share disclosed in the consolidated comprehensive statement of income are determined by dividing net profit for the year by the weighted average number of shares that have been outstanding during the year. Companies can increase their share capital by making a pro-rata distribution of shares ("bonus shares") to existing shareholders from retained earnings. For the purpose of gains per share computations, the weighted average number of shares outstanding during the year has been adjusted in respect of bonus shares issues and other similar movements without a corresponding change in resources, by giving them retroactive effect for the year in which they were issued and for each earlier year. 17
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.12 Events after the balance sheet date Subsequent events, announcements related to net profit or even declared after other selective financial information has been publicly announced, include all events that take place between the balance sheet date and the date when balance sheet was authorised for issue. In the case that events require a correction to be made occur subsequent to the balance sheet date, the Group makes the necessary corrections to the consolidated financial statements. Moreover, the events that occur subsequent to the balance sheet date and not require a correction to be made are disclosed in accompanying notes, where the decisions of the users of consolidated financial statements are affected. 2.5.13 Provisions, contingent assets and contingent liabilities Provisions are recognized when the Group has a present obligation as a result of a past event, and it is probable that the Group will be required to settle that obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at the balance sheet date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows. When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognized as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Onerous contracts Present obligations arising under onerous contracts are recognized and measured as a provision. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under it. 2.5.14 Related parties For the purpose of the consolidated financial statements, shareholders having control, joint control or significant influence over the Group, International Beer Breweries Ltd Group companies, fellow subsidiaries and key management personnel together with companies controlled, jointly controlled or significantly influenced by them are considered as and referred to as related parties. 2.5.15 Operating segments Due to the fact that the Group only operates in one single industrial segment, that a substantial part of its operations occur in Turkey and that all of its assets are located in Turkey, the financial information are not required to be reported by segments. 18
NOTE 2 - BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS (Continued) 2.5.16 Taxation and deferred income taxes Turkish tax legislation does not permit a parent company and its subsidiary to file a consolidated tax return. Therefore, provisions for taxes, as reflected in the accompanying consolidated financial statements, have been calculated on a separate-entity basis. Income tax expense represents the sum of the tax currently payable and deferred tax. i. Current tax The tax currently payable is based on taxable profit for the year. Taxable profit differs from profit as reported in the consolidated comprehensive income statement because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the balance sheet date. ii. Deferred tax Deferred tax is recognized on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases which is used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognized for all taxable temporary differences and deferred tax assets are recognized for all deductible temporary differences to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future. The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the period in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the balance sheet date. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the Group expects, at the reporting date, to recover or settle the carrying amount of its assets and liabilities. Deferred tax assets and liabilities are offset when there is a legally enforceable right to set off current tax assets against current tax liabilities and when they relate to income taxes levied by the same taxation authority and the Group intends to settle its current tax assets and liabilities on a net basis. 19